1. Fiscal Policy SSEMA3

2. What is Fiscal Policy?
Sometimes in a market economy it is necessary to shift the demand curve – this is called demand-siding
Fiscal policy is the
governments attempt to
influence or stabilize the
economy through taxing and
government spending

3. Demand Side Policies
Fiscal policies are designed to increase employment by stimulating demand

4. How does the Government get involved?
The govt. is the only thing big enough to offset a spiraling economy
The govt. can undertake its own spending to offset the spending in other parts of the economy – like businesses
The government can also lower taxes to increase borrowing and push consumers to spend more
So, if business spending was down $50billion – the government might spend $10 billion building a dam, $20 billion in grants to fix neighborhoods, and $20 billion in other ways
This spending would offset the $50 billion that businesses did not spend

5. Or – instead of spending, the government could just reduce taxes giving consumers and businesses more purchasing power
P. 420 read – demand side policies

6. Supply Side Policies
Designed to stimulate output and lower unemployment by increasing production NOT by stimulating demand
The key goal here is to reduce the governments role in the economy
Reducing federal agencies
Less government spending
Deregulating firms – allowing them to produce at full capacity
See p. 425 figure 15.7

7. Assignment Read the chart on page 423 – Comparing Policies
How are both of these policies similar?
How are they different?